ISLAMABAD, March 23: Pakistan and Malaysia are likely to conclude the much-awaited Free Trade Agreement (FTA) next month, which is expected to become operational from July 1, 2007, Dawn has learnt.

Both sides are expected to hold the final round of negotiations scheduled to start on April 23 in Islamabad to give final touches to the negative lists and other preferential lists of the agreement.

Informed sources told Dawn that a high-level official delegation from Kula Lumpur would arrive here in April next to negotiate some controversial parts of the agreement, which includes Malaysian request for reduction in duty on palm oil under the agreement.

Pakistan seemed reluctant to give any reduction in duty on palm oil, which is one of the major revenue spinners, besides it would also give a bad signal to countries exporting other oil seeds, particularly the United States and Indonesia.

The sources said that Malaysian authorities had linked market access for Pakistani textile products with reduction in import duty on palm oil. Textile products constitute more than 64 per cent of Pakistan’s total exports and Islamabad would be left with fewer products to export to Malaysia under the agreement.

Pakistani textile products were facing tough competition from Thailand and Indonesia in the Malaysian market due to the Asean treaty. For Asean members the customs duty ranges around five per cent while it ranges between 20 to 25 per cent for non-Asean countries.

This means that in case the textile products were not given market access, the FTA would become meaningless for Pakistani exporters, as it would not provide a level-playing field to Pakistani products against those exported by Asean members.

As talks on FTA remain inconclusive due to these differences, Pakistan and Malaysia have already extended operation of the early harvest programme (EHP) — zero rate of duty on selected items — for a period of three months, which was due to expire by March 31.

Pakistan and Malaysia had signed EHP in October 2005, which came into effect from Jan 1, 2006. Under the programme, the two countries granted reduced tariffs on 125 and 114 export items, respectively. The initiative was scheduled to expire upon implementation of the FTA, or on March 31, 2007, whichever was earlier.